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Tuesday, January 14, 2014

Back to College

Last October, I made my biennial trip to Austin, Texas for the DFA College. The investment advisory industry is full of conferences and seminars, but the DFA College is the only event that I attend regularly. It is by far the best conference, because it is full of useful, detailed information that actually helps me do a better job for my clients.I bring this up because, at the last College, there was a reporter from Barron's named Beverly Goodman in attendance to write a story about DFA. Her story was the cover article in the January 4th issue of the magazine. Here's a link to the article, followed by some great quotes:Market Beaters

"This was no boondoggle business trip. The College, as it's known, is a two-day, biannual event that draws more than 100 advisors from all over the nation for some very academic presentations, held in a lecture hall the firm built just for this purpose. The advisors are already sold on the veracity of the efficient-market hypothesis pioneered by Fama in 1965 -- they have to be in order to sell Dimensional's funds -- but they come to hear about new research, and new products and strategies, and for the chance to hear the gospel from the prophet himself"

"And yet its overall performance is headline-worthy. More than 75% of its funds have beaten their category benchmarks over the past 15 years, and 80% over five years, according to Morningstar -- remarkable for what some investors wrongly dismiss as index investing. Its process is simple and repeatable -- and yet no other firm has tried emulating it. When asked why, co-founder, chairman, and co-CEO David Booth, 67, draws a surprising analogy to Star Wars, and Luke Skywalker's inability to harness the power of the Force until his devotion was deep and unwavering. "We are believers down to our toes," Booth says."

"Fama and French are not the only academics on Dimensional's board, and Fama isn't even the only Nobel Prize winner. Myron Scholes of Stanford University, who won in 1997 for the Black-Scholes method for valuing derivatives, lends his expertise to the funds' board. Also on the board are Roger Ibbotson, the founder of research firm Ibbotson Associates, a current hedge- fund manager, and Yale professor, and four other academics, from Chicago and Stanford. "That lineup is unbelievable," says co-CEO Eduardo Repetto. "When you talk to the board about investments, you're not talking to marketing people. You're talking to the people who wrote the book on investing." Repetto is no slouch in the academics department himself -- in fact, he's a rocket scientist. He joined Dimensional almost 14 years ago, shortly after completing his Ph.D. in aeronautics at the California Institute of Technology and, like Booth, deciding that a career in academia was not for him."

"Advisors selling DFA funds have monthly or quarterly meetings with one another, facilitated by a DFA manager, to discuss portfolio and practice management. And there's the College, held every two years. This year, as usual, Fama and French spoke, with Fama presenting 18 pages of data arranged neatly in columns (later referring to it as "pretty low-level stuff"), and French explaining it all. Behavioral-finance expert Brad Barber also spoke, as did an array of Dimensional execs to tie it all into the business. "DFA has far and away the best educational conferences," says Rick Ferri, who manages $1.3 billion, $100 million of which is with DFA. "They put Ph.D.s in front of you. Everyone else gives you marketing people.' "

Interestingly, I sat next to Ms. Goodman at lunch on the second day of the conference. I guess I didn't say anything interesting enough to be quoted. Oh well.